Business Commons^™

Audit Committee Incentive Compensation And Accounting Restatements, Deborah Archambeault, F. Todd Dezoort, Dana Hermanson

Deborah Archambeault

This study investigates whether incentive-based compensation for audit committee members is associated with accounting restatements. We use an agency framework to predict that short-term (long-term) incentive compensation for audit committee members will increase (decrease) the likelihood of accounting restatements due to error or fraud. Using a matched-sample logistic regression with 153 restatement and 153 nonrestatement companies, we find the predicted positive relation between short-term incentive compensation (short-term stock option grants) for audit committee members and likelihood of restatement. However, the long-term incentive compensation results contradict prediction and indicate a significant positive relation between audit committee member long-term incentive compensation {long-term …

Audit Committee Effectiveness: A Synthesis Of The Empirical Audit Committee Literature, F. Todd Dezoort, Dana R. Hermanson, Deborah S. Archambeault, Scott A. Reed

Deborah Archambeault

The article describes the factors that contribute to audit committee effectiveness. An effective audit committee has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. The determinants of audit committee effectiveness includes the audit committee composition, authority, resources and diligence. The major U.S. stock exchanges require that audit committees be composed of at least three independent, financially literate directors. Team issues also are relevant when considering audit committee composition. The audit committee derives its authority from the full board of directors, federal law …

Fin 48: The Impact On Staffing, Internal Control Processes And Expertise Of Privately-Held Companies, Reed Kirschling, Michael Akers

Michael D. Akers

While FASB Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes-An Interpretation of Statement of Financial Accounting Standards (SFAS) 109, Accounting for Income Taxes applies to both privately-held and publicly traded companies, privately-held companies have characteristics that can impact implementation. This paper reports the findings of a survey of the top 100 privately-held companies to determine how these organizations are addressing the staffing of tax department personnel, process controls and knowledge acquisition during the implementation of FIN 48.

International Perception Of Corruption, Bina Menon, Michael Akers

Michael D. Akers

The discussion of corruption and bribery in most auditing textbooks focuses only on the Foreign Corrupt Practices Act which is an amendment to the Securities Exchange Act of 1934. As the US moves toward the implementation of International Financial Reporting Standards (IFRS) and international auditing standards, an understanding of international legislation pertaining to corruption and the perception of corruption in specific countries are important. This paper provides an overview of the Foreign Corrupt Practices Act (FCPA) and the Organization for Economic Co-operation and Development (OECD) Anti-bribery Convention. While prior literature has discussed the impact of both the FCPA and OECD …

Review Of Modern Auditing, Michael Akers

Michael D. Akers

No abstract provided.

An Empirical Analysis Of Cash Flow, Working Capital, And The Stability Of Financial Ratio Groups In The Hospital Industry, David Chun, Terrell Zollinger, Anne Kelly, Robert Sawyer

Anne Kelly

Hospitals are facing stringent financial constraints as well as proposed changes in their financial reporting. Three issues were explored: (a) whether hospital financial ratio groups differed from industrial firm financial ratio groups found in previous studies; (b) whether hospital financial ratio groups remained stable over a five-year period 1983–1987; and (c) whether there was a difference between working capital flow, cash flow, and net income plus depreciation as alternative hospital asset flow measures. The results of our study confirmed the existence of five hospital ratio groups that were identical to industrial ratio groups. A separate Cash Flow group emerged for …

Assessing Accountability In U.S. Public Education, Anne Kelly, J. Orris

Anne Kelly

Public education accountability rests almost exclusively with schools rather than governments. This paper explores its three dimensions: economy, efficiency, and effectiveness. Performance indicators of these dimensions were developed which facilitated testing of significant differences in means over time using analysis of variance. Only salary and wage expenditures per instruction personnel exhibited greater economy. Instructional equipment per pupil was related to increased efficiency. Several indicators suggested enhanced effectiveness. Student/teacher ratio declined and top performers in public schools improved in achievement. Graduation rate, an indicator of achievement and participation, significantly rose in recent years. In summary, several effectiveness indicators revealed encouraging trends …

The Impact Of Group Selection On Student Performance And Satisfaction, Sakthi Mahenthiran, Pamela Rouse

Pamela J. Rouse

Investigates whether the performance and attitudes of students could be improved by giving them some control over the group selection process. Groups were formed either by randomly combining paired friends or by randomly assigning all students. Students completed a group exercise and a group case. The dependent variables were the project grades and student satisfaction. Student satisfaction was measured using a questionnaire. The results show that attitudes of students were more positive when they were allowed to choose a single friend in the group. The project grades were significantly higher when students were paired, and this result was true regardless …

Returns To Scale Pattern And Efficient Firm Size In The Public Accounting Industry: An Empirical Investigation, Carolyn Galantine, H. Chang, A. Thevaranjan

Carolyn A Galantine CPA., PhD

This paper employs Data Envelopment Analysis to investigate returns to scale patterns and efficient firm size in the public accounting industry in the USA post-Sarbanes–Oxley Act. Using contemporary survey data from Accounting Today's top-100 accounting firms for the years 2003 and 2004, our results indicate that the very largest accounting (first tier) firms display constant returns to scale, whereas approximately half of the smaller (second tier) firms exhibit increasing returns to scale. These findings suggest that while very large firms are optimally scaled, there still are economic efficiencies to be gained through expanding the size of nearly half of the …

New Ventures: Control Of Risks Through Strategies, Simone Kelly, Raymond Mcnamara

Ray McNamara

This paper uses case studies and interview data to explore the relationship between control and new venture success/survival. A model of the new venture control process is distilled and explored in six new venture cases. The control processes were traced through an examination of the everyday language of venture principals to determine a grounded lower order model. Integrating these models into contingency theory locates strategic risk reduction choices as the crucial link between contingent variables and organizational control packages. In this sense the process of organizing is seen as a tiered process of risk reduction: successful firms analyze and control …

New Ventures: Control Of Risks Through Strategies, Simone Kelly, Raymond Mcnamara

Simone Kelly

This paper uses case studies and interview data to explore the relationship between control and new venture success/survival. A model of the new venture control process is distilled and explored in six new venture cases. The control processes were traced through an examination of the everyday language of venture principals to determine a grounded lower order model. Integrating these models into contingency theory locates strategic risk reduction choices as the crucial link between contingent variables and organizational control packages. In this sense the process of organizing is seen as a tiered process of risk reduction: successful firms analyze and control …

An Empirical Examination Of The Factors Affecting The Success Of Ncaa Division I College Basketball Teams, Michael D. Akers, Shaheen Wolff, Thomas E. Buttross

Michael D. Akers

The Cobb-Douglas production function, regression analyses, and discriminant analyses are used to examine the factors affecting the success of Division I men's basketball teams in the National Collegiate Athletic Association (NCAA). Data were obtained for 229 teams. The results indicate that important factors in success are 2-point field-goal percentage, rebounds, steals, 3-point field-goal percentage, turnovers, and personal fouls. Variables that distinguish winning teams from losing teams are 2-point field-goal percentage, turnovers, prior years' winning percentage of the head coach, free-throw percentage, steals, and rebounds. The results also indicate that the production function of the teams exhibit increasing returns to scale.

Maintaining Integrity And Objectivity Avoiding Subordination Of Judgment When Threats Exist, Steven Mintz

Steven Mintz

According to the AICPA Code of Professional Conduct, “in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.” Rule 102 thus prohibits a member from knowingly misrepresenting facts or subordinating judgment when performing professional services for a client and employer. The rule was revised to provide guidance for external auditors who might face pressures within the firm to subordinate judgment.

Maintaining Integrity And Objectivity Avoiding Subordination Of Judgment When Threats Exist, Steven Mintz

Steven Mintz

According to the AICPA Code of Professional Conduct, “in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.” Rule 102 thus prohibits a member from knowingly misrepresenting facts or subordinating judgment when performing professional services for a client and employer. Interpretation 102-4, “Subordination of Judgment by a Member,” was revised to provide guidance for external auditors who might face pressures within the firm to subordinate judgment. This papers describes the new rules and provides a …

Continuous Improvement Systems, Balanced Scorecard Systems And Organisational Performance, Errol Iselin, John Sands, Lokman Mia

Errol Iselin

The use of multi-perspective performance reporting systems (MPRS), such as the balanced scorecard (BSC), is widespread. This study's motivation comes from the importance of these systems and the lack of knowledge about them. Continuous improvement systems (CIS) are another accounting innovation. CIS constantly look for ways to improve performance and are used in conjunction with performance reporting systems. The research objectives are to study MPRS users and to investigate: (1) the dimensions of multi-perspective performance reporting and organisational performance, and (2) the relationship between CIS and performance. We found 10 dimensions of performance reporting, 11 dimensions of performance, and that …

Attaining Legitimacy By Employee Information In Annual Reports, Pamela Kent, Tamara Zunker

Tamara Zunker

Purpose – The purpose of this study is to provide evidence on the category, quantity and quality of voluntary employee-related information Australian listed companies disclose in their annual report. An explanation is also sought to determine whether companies adopt employee-related disclosures to legitimise their relationship with society. Voluntary adoption of corporate governance best practice recommendations is used as a measure of companies’ attempts to attain ex ante legitimacy. Media agenda setting theory is used as a measure of an attempt to gain legitimacy ex post following adverse publicity from the media. Design/methodology/approach – The annual reports of all companies with …

Do Corporate Governance Recommendations Improve The Performance And Accountability Of Small Listed Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

Pamela Kent

This study examines whether the implementation of the 2003 Australian Securities Exchange Limited governance recommendations influenced the governance choices of small companies and whether compliance improves their accounting and market performance and earnings quality. Our analysis examines small and large companies because we are interested in the different effects of the governance recommendations on the two groups. The analysis shows a significant shift by small and large companies to comply with the recommendations around the time of their introduction. We find that formation of an audit committee surrounding the reform period is significantly associated with improved earnings quality for small …

Attaining Legitimacy By Employee Information In Annual Reports, Pamela Kent, Tamara Zunker

Pamela Kent

Purpose – The purpose of this study is to provide evidence on the category, quantity and quality of voluntary employee-related information Australian listed companies disclose in their annual report. An explanation is also sought to determine whether companies adopt employee-related disclosures to legitimise their relationship with society. Voluntary adoption of corporate governance best practice recommendations is used as a measure of companies’ attempts to attain ex ante legitimacy. Media agenda setting theory is used as a measure of an attempt to gain legitimacy ex post following adverse publicity from the media. Design/methodology/approach – The annual reports of all companies with …

Do Corporate Governance Recommendations Improve The Performance And Accountability Of Small Listed Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

James Routledge

This study examines whether the implementation of the 2003 Australian Securities Exchange Limited governance recommendations influenced the governance choices of small companies and whether compliance improves their accounting and market performance and earnings quality. Our analysis examines small and large companies because we are interested in the different effects of the governance recommendations on the two groups. The analysis shows a significant shift by small and large companies to comply with the recommendations around the time of their introduction. We find that formation of an audit committee surrounding the reform period is significantly associated with improved earnings quality for small …

Insolvency Administration As A Strategic Response To Financial Distress, James Routledge, David Morrison

James Routledge

This study considers whether the strategic decision to enter voluntary administration (VA) rather than to trade the company’s business for a protracted period of declining performance is systematically related to the effective monitoring of management decision-making. Analysis that tests the association between strategic entry into VA and the likelihood that a company will reorganize in VA is also presented. We find about half of the companies in our sample entered VA as a strategic choice. The likelihood of strategic entry to VA increased with the proportion of independent board directors, the existence of an audit committee and a dual CEO/chair …

Pricing Of Innate And Discretionary Accruals In Australian Debt, Husam Aldamen, Keith Duncan

Keith Duncan

This paper addresses the conflicting evidence on the role of accruals in debt pricing. We show that the two subcomponents of accruals quality, innate and discretionary accruals, both impact the debt pricing. Higher innate accruals increases cost of debt, consistent with the prior evidence (Francis et al., 2005; Gray et al., 2009). However, we also find that higher discretionary accruals reduce the cost of debt. This contrasts with the prior evidence of a positive association between discretionary accruals and cost and debt (Francis et al., 2005), and no association (Gray et al., 2009). We show that noisy measurement of cost …

Fast Track To Direct Cash Flow Reporting, Paul Miller, Paul Bahnson

Paul R. Bahnson

Even though good reasons abound for using the direct method of reporting operating cash flow, almost all managers choose the indirect method. We, and others whose opinions we respect, consider the direct method to be far superior to the indirect because it generates information that's more useful to the capital markets for assessing the amounts, timing, and uncertainty of a company's future cash flows. Contrary to today's conventional wisdom, the direct method isn't hard to apply. In fact, with the system modifications described in this article, it will be easy to provide the information financial statement users want. After applying …

Perfect Storm Prompts Changes In Pension Accounting, Paul Miller, Paul Bahnson

Paul R. Bahnson

Over the first half of the decade, pension and other postretirement benefit plans were hit hard by a perfect storm of economic forces. Investment returns were irregular and often less than expected. Falling interest rates caused employers' obligations to soar. And many old-line industries experienced a cash crunch that encouraged management to offer increased pension benefits in lieu of higher wages. A shift in demographics has resulted in far fewer younger workers and many more who have retired or are about to do so.

Noncontrolling Interest: Much More Than A Name Change, Paul Bahnson, Brian Mcallister, Paul Miller

Paul R. Bahnson

In December 2007, FASB adopted two new business combination standards: Statement no. 141(R), Business Combinations, and Statement no. 160, Noncontrolling Interests in Consolidated Financial Statements. Both culminated years of work directed at improving reporting for consolidated entities. This article summarizes the most important changes created by Statement no. 160, which is effective for fiscal years beginning after Dec 15, 2008. The most visible innovation in Statement no. 160 is the name change from "minority interest" to "noncontrolling interest." A major change affecting income reporting concerns the treatment of the earnings related to midyear acquisitions. Statement no. 160 will require new …

Refining Fair Value Measurement, Paul Miller, Paul Bahnson

Paul R. Bahnson

Financial Accounting Standards Board (FASB) issued a standard in fall 2006 with the understated title Fair Value Measurements. On one hand, FASB Statement no. 157 appears to shake the foundation of historical cost measurement. On the other, it appears innocuous because it does not compel greater use of fair values. CPA's should quickly acquaint themselves with the new rule, since it becomes effective for annual statements for fiscal years beginning after Nov 15, 2007, and for interim reports prepared in that initial fiscal year.

The Top 10 Reasons To Fix The Fasb’S Conceptual Framework, Paul Miller, Paul Bahnson

Paul R. Bahnson

The Financial Accounting Standards Board (FASB) produced most of its Conceptual Framework (CFW) more than 20 years ago in a project that began in the 1970s. It achieved notable positive results, yet it isn't without flaws. These blemishes originate from several sources, including political pressures. But time has yielded a new environment that enables the FASB to fix the shortcomings.

A Penny For Your Thoughts: Sizing Up Manipulative Eps Rounding, Paul Miller, Greg Martin, Paul Bahnson

Paul R. Bahnson

For as long as public companies have been required to report earnings per share (EPS), there probably have been misguided managers who try to nudge it higher.

We’ve written this article to unveil a method of manipulating EPS that, near as we can tell, hasn’t yet been described in print. Because any attempt to manipulate EPS creates uncertainty and uncomfortable risk for investors—which, in turn, could create capital market inefficiencies and produce discounted stock prices—we want to expose this inappropriate and unproductive gamesmanship and then help eliminate it.

Our specific concern is that a troubling number of managers, and perhaps …

Corporate Governance And The Quality Of Green House Gas Emission Disclosures, Janice Hollindale, Pamela Kent, James Routledge

James Routledge

The introduction of the National Greenhouse and Energy Reporting Act 2007 (Cth) legislation is evidence of the importance the Australian Government places on the issue of greenhouse gas emissions (GHG) reporting. Australian corporations’ GHG disclosure information in annual reports is currently unknown as most research has focused on environmental voluntary disclosures in general. We used content analysis to produce an index wherein we assessed the quality of GHG disclosures made in the annual reports of Australian public-listed companies in 2007. Our interest was focused on whether good quality corporate governance influences the quality of GHG emission disclosures. We examined the …

Are Corporate Governance Recommendations Relevant For Small Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

James Routledge

This study examines the extent to which small listed companies in Australia comply with the Australian Securities Exchange corporate governance recommendations, and whether applying these recommendations is associated with benefits in terms of performance and accountability. The results indicate that many small listed companies comply with the recommendations, although the benefits to these companies from doing so appear to be low. We do not find evidence of a positive association between small company compliance with recommendations regarding board independence, diligence and formation of an audit committee and performance. However, we find that compliance with the recommendation against having a dual …

Are Corporate Governance Recommendations Relevant For Small Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

Pamela Kent

This study examines the extent to which small listed companies in Australia comply with the Australian Securities Exchange corporate governance recommendations, and whether applying these recommendations is associated with benefits in terms of performance and accountability. The results indicate that many small listed companies comply with the recommendations, although the benefits to these companies from doing so appear to be low. We do not find evidence of a positive association between small company compliance with recommendations regarding board independence, diligence and formation of an audit committee and performance. However, we find that compliance with the recommendation against having a dual …